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Asia at 1pm HK time
ASX 200 dipped on the open but then worked better and currently testing new highs +38pts (+0.5%) @ 7,298.
Banks, CSL and Woolies leading the market higher. Iron ore +VE, Gold weak but miners under pressure. Tech weak. Sentiment +VE despite news that Public health officials have identified a “very concerning” new COVID-19 variant in some cases that have been identified in Melbourne that are not linked to the current outbreak
Pre market Household spending beat forecasts
Nikkei opened lower and dipped to 28,765 level which it tested a number of times in the first 30 minutes before bouncing and trading 28,800/886 before working better into lunch, 28,915.
PM opened higher but drifting lower currently -117pts (-0.4%) @ 28,943
Topix traded a similar pattern with a low of 1,946 and a high after lunch at 1,959 (yesterday’s closing level). Currently flat @ 1,958
Data pre market
Household Spending Apr +0.1% MoM vs +7.2% Mar (F/cast was -2.4%)
Household Spending Apr +13% YoY vs 6.2% Mar (F/cast was +9.5% )
KDCA reported 695 new covid cases (674 local inflections); thir day in the 600’s but up from Thursday.
Govt to consider another extra budget without debt sale +VE for sentiment.
Kospi opened lower and sold down to 3,218 in the first 15 traded sideways for the next hour and restested the support but then worked better; currently -6pts (-0.2%) @ 3,242
Kosdaq similar pattern, sold down to 985 in the opening 15 minutes, bounced but then trended lower to 983 at 10:40am before working better. Currently -1pts (-0.1%) @ 989
Taiex opened lower and sold down to 17,150 in early trades. Then dipped to 17,100 but bounced back. Traded sideways around 17,150 before dipping to 17,085. Then traded sideway in that range 17,100/150. Currently -121pts (-0.7%) @ 17,132
CECC reported 364 new covid cases with 219 back log cases and also announced that 1m vaccine doses would arrive from Japan today.
Tropical Storm Choi-Wan is likely to be downgraded to a tropical depression +VE as likely to bring rain and cooler temperatures.
CSI 300 opened lower and tested 5,221 in initial trades before working higher to 5,268 around 10:40am. Then trended lower to Thursday’s closing level before spiking into lunch; +25pts (+0.5%) @ 5,280. Watch for Team China in the PM session.
Concerns over US relations as Biden extends Trumps list of companies that US citizens cannot invest in. China confirmed 24 additional COVID-19 cases yesterday (3 June), including nine local infections in Guangdong, reported by the National Health Commission.
No data today but Monday pre market we get Trade Data
Pre market opened @ 28,838 -128pts vs +14pts ADR’s market sold down to 28,738 in the opening minutes, with Meituan weak as CEO converts shares and places some in a charity foundation. Then worked better but saw resistance at Thursday’s closing level and eased back to 28,900 before rallying into lunch +41pts (+0.1%) @ 29,007
Ecommerce names most rebounded, but Tencent -0.7% Bidu -3%.
Telco’s unmoved by being on the Biden list most +VE but SMIC -1.9%
Chinese Financials weak, Geely strong as confident will make its sales targets. Xtep and selective medical names +VE.
I would expect market to open flat/lower as Asian markets recover from initial losses. But trade with caution ahead of the US jobs report
EUROZONE Construction PMI, Retail Sales
GERMANY Construction PMI, New Car Registrations
FRANCE Construction PMI, Retail Sales
UK New Car Sales, Construction PMI
Opened flat Dow +9ps S&P -0.01% and NDX -0.03%
Non Farm Payrolls, Unemployment Rate, Average Weekly Hours, Average Hourly Earnings, Participation Rate, Factory Orders,Baker Hughes Rig Count.
Fed Speakers Chairman Powell on central banks and climate change
FT Front Page
China puts lid on Tiananmen
Inside Beijing quashes rally Party has again used Covid to halt vigils but activists say it is another assault on democracy.
It was banned last year but still took place but with the new national security law the expectation is that few will risk turning out. It notes that the reason given again this year was due to covid, although the number of reported covid cases in Hong Kong has dropped significantly. Key is that the government does not want to say it is for political reasons. So it will be interesting to see if people do gather whether they are arrested on public health grounds or under the National Security Law. Either way the adminstration is further alienating itself from a significant part of the local population.
It’s also reported locally that the Police are taking no chances and will cordon off part of Victoria Park and deploy up to 7,000 officers across the city today amid online calls from ‘Tiananmen Mothers’, which said remembering June 4 is a patriotic act and should not be banned on political grounds.
Of the officers, some 3,000 will be deployed at the park in Causeway Bay, where the annual candlelight vigil used to take place. Police may also cite the Public Order Ordinance to cordon off the park if people start to gather in the evening.
Whilst I don’t expect a lot of prople to attend in gathering there is a call to just light a candle. I would expect a lot of people will light candles where ever they are.
The article concludes '“It’s getting worse,” said a veteran member of the territory’s pro-Beijing political camp who feels the crackdown has been excessive. “Beijing cannot tolerate even one dissident voice.”'
Fears mount for poorer nations as food price rises hit 10-year high
• Inflation surges 40% • China demand ramps up pressure • Mideast and west Africa at risk
An interesting read and a key driver has been buying from China although China announced food prices dropping 0.8% WoW, with pork prices falling 3.3 percent, said the Ministry of Commerce. The wholesale price of pork was 24.71 yuan per kilogram, down 3.3% WoW. The average wholesale price of 30 kinds of vegetables was 4.3 yuan per kilogram, down 0.2% Rice and oil prices also had a slight fall.
China is trying to contain domestic inflation as the data increasingly shows that the recovery in China seems at best two speed or at worst faltering. With the anniversary of the Party approaching at the end of the month policy makers in China don’t want the spectre of rising inflation detracting from the party but they have limited options.
Genome breakthrough opens door to creating cells unlike anything in nature
Cited as a ‘“This is potentially a revolution in biology,” said Jason Chin, project leader at the MRC Laboratory of Molecular Biology in the UK. “These bacteria may be turned into renewable and programmable factories that produce a wide range of new molecules with novel properties, which could have benefits for biotechnology and medicine, including making new drugs such as antibiotics.”’
It notes that ‘One aspect of the technology is that synthetic bacteria are impervious to infection by viruses, which require natural processes to replicate in host cells.’
An interesting read.
Washington to bar Americans investing in 59 China groups
The new list is extended from the existing 31 names and is said to have a better legal standing than Trumps list.
The list includes Huawei, Semiconductor Manufacturing International Corporation, Aviation Industry Corporation of China, China National Offshore Oil Corporation, China Railway Construction Corporation, China National Nuclear Corporation, China Mobile, China Telecom and China Unicom.
Key points ban will take effect on August 2.
Investors can make trades over the next 12 months to divest their holdings. ‘While Americans are not required to divest the securities, they will be unable to sell their holdings after the one-year period without special approval from the US Treasury, which will oversee the new regime.’
The ban includes banning Americans from investing in funds that contain Chinese securities in their portfolios -VE for ETF’s, Mutual Funds and Index trackers.
Hopes rise for G7 global tax agreement
Broad principles on ways to stop shifting of profits around world take shape. A key discussion at the G7 meeting which starts today and runs tomorrow too.
The meeting will be watched carefully as the issue has wide reaching ramifications.
Biden open to axing corporate tax rise
Concession offered by US president to secure deal on infrastructure spending; he may drop his intention to raise corporate tax to 28% from 21% in order to get agreement on his infrastructure bill. He would instead ‘proposed that the new infrastructure spending should be funded by more aggressive tax law enforcement by the Internal Revenue Service on wealthy households. And he wants to impose a 15 per cent minimum tax on businesses so they cannot take advantage of loopholes that mean they end up paying very little or nothing at all.’
It notes that ‘his bid for a corporate income tax increase may only be temporary and confined to the Republican negotiations. If the US president ends up negotiating an additional spending package with Democrats alone, a corporate income tax increase is likely to be back on the table.’
Interesting to watch the negotiations.
Boom in used cars drives US inflation
Tight supply, soaring demand and fiscal stimulus mean sector is key indicator for Fed.
Looks at the drivers of US inflation (Energy, Used Cars/Trucks, Bacon, Mens pants & shorts, Airline fares, Jewellery/Watches, Homecare for elderly, Sewing machiness/fabric and Furniture and bedding).
The Fed still sees more of the inflation as being temporary but likely to be around through the summer. But it is interesting to note that car loan defaults and repossession have declined too. Putting more pressure on the supply of secondhand cars as did the rental car firms selling off their fleets last year and operating smaller fleets currently.
The situation is far from clear, the Fed is no doubt watching a lot of data points (Headline and Core inflation, PCE and wage growth along with its index of common inflation expectations).
But as the article concludes with inflation is not going to ease until there is a big increased in supply. I think the fact that people are defining temporary as up to yearis likely to mean that inflation expectations will become more established and that could trigger raising pay rise demands.
Worth a read.
US labour market strengthens as new jobless claims tumble
Looks at yesterday’s encouraging labour data; with new claims down more than expected and the ADP showing good hiring albeit in the lower paid leisure and hospitality sector.
It quotes there had been a “discouraging disconnect between initial jobless claims and continuing claims”, said Thomas Simons, money market economist at Jefferies. “While the former has been falling steadily, the latter has been sticky. Lay-off activity has slowed significantly, but people collecting the enhanced unemployment benefits have been reticent to return to work.” As noted in earlier articles there are also covid concerns and the pacticalities of childcare for a lot of workers.
All of which puts more focus on tonights data.
US business frustrated by lingering effect of Trump China tariffs
Biden has surprised many experts by largely adhering to former president’s stance.
An interesting read. Biden has said they are reviewing the whole process giving his adminstration time and the key date is the 2022 congressional elections.
Business are disappointed but there is little they can do but wait and see. Republication’s can’t really complain because Trump instigated the tariffs. It concludes '“There’s a growing feeling that these experienced folks aren’t sure what to do about China, that for all their frustrations with Trump, they didn’t arrive in office with a plan other than to spend a lot of money domestically to increase competitiveness and are now just trying to buy time with an endless number of internal reviews,” the person said.'
COMPANIES & MARKETS
JPMorgan aims for full control of China venture; with an application to purchase 100% of the business up from the current 71%. It is following in the footsteps of Goldmans. It endorses the FT article earlier this week about Wall Street new love affair with China and its all about selling investment products to the Chinese people; especially the rich and the rising middle class.
What is interesting is that firms want 100% ownership rather than being tied to a partner. They obviously do not feel the need of having a local partner. That could be because they feel there is risk associated with some of the local banks branding and expect more kudos from being stand alone. It could also mean that they will look at new marketing methods. Historically prodcuts have been sold via the branch network but Ant should that was not necessary. But it is a very competitive business so it will be interesting to see how their strategy works out. Especially if they fall foul of the regulator at any time.
Ma thaw signalled as Ant secures licence
Green light from China watchdog for consumer unit after ‘rectification’. It notes ‘The unit will become the centrepiece of Ant’s restructured lending business, which had grown so large that it issued about a tenth of China’s non-mortgage consumer loans last year through its Ali-pay app.
The business caught regulators off-guard when its scale was first revealed in the prospectus for Ant’s $37bn initial public offering and has been a focus of authorities’ scrutiny since they suspended Ant’s listing last November.’
The new unit also has new shareholders ‘include Nan-yang Commercial Bank, battery maker Contemporary Amperex Technology, and the country’s biggest distressed-debt investor, China Huarong Asset Management, among others.’
Key positive is that it has a licence and can do business but it also means that one of Ant’s core businesses has effectively be spun-off. The article mentions that the unit still has funding issues and there is debate about whether it raises more capital or exits from some of the business lines. I would expect the former.
An interesting read not least because Ant is focused on the mass market in China whereas JP Morgan, Goldmans and others are focused on the higher income bracket. It will be interesting to see who does better.
Silicon Valley bets on crypto start-ups to disrupt finance
DeFi projects do away with the intermediary and bring wave of venture capitalists.
Decentralised Finance (DeFi) an interesting looking into the changes currently underway. Key is that at the present time there are no clear winners but a lot of contenders. The potential for more regulation is one of the things making some mainstream investors cautious. Worth a read.
Fed to unwind pandemic emergency purchases of US corporate debt
It will ‘start selling the corporate bonds and fixed income funds that it bought to stabilise the financial system last year, unwinding unprecedented emergency measures that electrified markets and brought down borrowing costs for companies reeling from the pandemic.’ Assets bought through the ‘Secondary Market Corporate Credit Facility, or SMCCF, would be sold gradually,’ over the course of the rest of 2021. The facility had $750bn available but less than $14b was used. Not a large amount and so not expected to have any significant impact.
The growth versus value rivalry is stale box office by Saira Malik global equities chief investment officer at Nuveen.
Makes the point that investors shouldn’t get too caught up on growth or value labels but should focus on companies with ‘strong fundamentals, poised to benefit from the cyclical economic recovery and long-term strong secular growth trends such as those we are seeing in emerging markets, small caps and consumer discretionary sectors.
As style recedes in importance, investors may find their portfolios hold relatively more “growth” or “value” exposure but perhaps they’ll also realise such distinctions don’t really matter.’
FT BIG READ. HEALTHCARE
The revolution in DIY testing
Rapid rollout of diagnostics should help governments stay on top of fresh Covid-19 outbreaks and the flu when it re-emerges. Many countries are tracking developments in the UK, including in genomics.
As AI develops, so does the debate over profits and ethics By John Thornhill
An interesing read starts with ‘at what point do the societal costs of not exploiting a transformative technology outweigh the conspicuous risks of using it?’
Concludes ‘The uses of AI are too varied and consequential for any one government, company or research organisation to determine. But the profit motive that currently directs so much research in the field risks distorting its outcomes. Public debate about where the balance lies between innovation and regulation may be raucous and messy, but it is both inevitable and good that it is growing louder.’
FCA/crypto: lagging regulator ‘Cryptocurrencies are relatively new to most regulators and banks. The FCA has at least signalled it is in the game. This is a second extension it has granted and, at eight months, it is generous.
In the US, the Securities and Exchange Commission has called for tougher regulation of crypto exchanges. Hong Kong requires them to be licensed by the Securities and Futures Commission and penalties for offenders are tough. “Discretion is the better part of valour” appears to be the FCA’s motto. While it plays for time, cryptocurrencies may implode or bolder authorities show how to regulate them.’
Wanda/AMC: meme moan
'Hindsight shows why we are not all billionaires. Most of us did not buy AMC shares a year ago. The equity, championed by meme traders, has since made a 1,000 per cent return.'
'Wanda needs the cash. Exposure to entertainment venues has taken a toll. Gross margins fell to 5.5 per cent in the year to March from 25 per cent in 2019. Debt to equity has more than doubled during the same period to 121 per cent.
Wanda still owns a ragbag of foreign businesses. They include UK yachtmaker Sunseeker and Hollywood studio Legendary. It is a good thing Wanda has plenty more assets that it could sell. Creditors of HNA have been pursuing bankruptcy proceedings.'
Ransomware: hostages to fortune
‘The cyber security industry is still highly fragmented. Consolidation will be driven not just by potential for cost savings. Wider client bases should help cyber security groups spot and counter new threats faster.’